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Only two and a half years have passed since the Prisma Investment House was established by Markstone Capital, and Prisma has taken yet another severe blow. In light of the poor results of Prisma's mutual funds, Bank Leumi and Israel Discount Bank are pressuring the investment house to increase its guarantees for the banks' loans.

Yesterday Prisma notified the Tel Aviv Stock Exchange that it would provide the two banks with further collateral in the form of shares from Prisma's ETF subsidiary. In addition, Markstone will provide the banks with another NIS 30 million in guarantees.

The question is why the two banks decided to put the screws on now. The banks' managements have been holding talks with Prisma for months on increasing the guarantees, which were originally provided in April 2006 when Prisma bought most of its present mutual funds. However, Prisma's plans never bore fruit, and its assets under management have been shrinking steadily - and the banks saw their guarantees shrinking, too.

Three years ago Ron Lubash and Amir Kess, the managers of Markstone, a private investment fund, established Prisma. The original investment was NIS 2.1 billion, half from Markstone's own funds and the remainder from the banks and a private placement from institutional investors. These debts are now estimated in the NIS 1 billion range.

Much of the investment went to pay for the NIS 850 million for Bank Hapoalim's PKN mutual funds. However, the funds immediately began to shrink, and the basis of the banks' calculations for the loans was NIS 15 billion in assets in the funds. In December 2006 Prisma also bought Hapoalim's Lahak funds with NIS 10 billion in assets, paying only NIS 150 million. Today the total managed by Prisma has dropped to only NIS 12 billion.

Prisma responded: "As part of the framework of updating the existing financing agreement, we provided as a guarantee the shares of the ETF [management] company... Any attempt to connect this to negative developments at Prisma is untruthful. Prisma, through its new management, is proceeding with the correct and long-term process of stability, and the updating of the financing agreement should be viewed as another milestone on the way."